Another lesson in Research - Its all in the Interpretation

Friday, September 11, 2009

Yesterday, a European central Bank board member gave an interview in which he admitted that there are signs the economy is picking up much quicker than was initially estimated.

The news outlets portrayed this as a sign that the “powers that be” are openly admitting that the turnaround has come and is in full force too. However, after reading the article in depth and a few statements he made after the interview, I am not so certain that he meant to bring elation to the Forex marketplace.

In fact, what he said was a word of caution, not promise and it was the media, yet again, which spun his words to become the precursor for celebration.

Christian Noyer, the ECG governing council member said specifically that he did not believe that there was room for overly optimistic sentiment at this stage. He said that there have been signs, good signs that the economy is rebounding and doing so at a faster rate than anticipated, although these facts are puzzling to the board right now.

I equate what he said to a man who’s legs were badly injured in a car crash – the doctors say he will walk again, although it will take a long time of hard work and physical therapy, to rehabilitate them. Just because he begins to wiggle his toes sooner than doctors thought, or just because the feeling returned to his calves does not mean that he will be running a marathon anytime soon – or walking unassisted to the bathroom for that matter.

The economy was hit hard, and there was much damage, internal and external as a result. There are many elements to this crisis and just because some areas are improving at a faster pace than was thought, does not mean the system as a whole is poised for such a rapid recovery.

We all need to put these things into perspective. Noyer was very clear in his caution, he said that the Central Bank and local governing bodies needed to holds steady on fiscal stimulus policies as right now, this is the one thing that is helping the growth.

Many on the street, Forex online traders and online Forex bloggers included, are anxious to have the governments stop funneling money in to the economy at such a rapid pace and they point to the “recovery” at hand as proof that it is no longer needed.

What I got from Noyer’s statements was that if you eliminate the monetary intervention into the economy at this point, you lose the recovery.

I am not a fan of many of the stimulus packages that were introduced around the world. I am a free market capitalist in my basics and I was anti-quantitative easing policies in the beginning – and to a large degree still am.

But I do admit that to an extent it has helped certain industries and is the reason why GDP in some countries are on the rise. I also believe that we all will pay for this in some form later on down the road too, but I see a point to it all. To eliminate the programs at this stage will undermine the good that has come from it, and set the economies back in a double-dip recession and this is something we cannot afford.

There are still dangers out there and we need to understand this. Patience here will prove to be virtuous. And as for the media outlets that are mincing words and leaving out meanings that can only be derived from the tone of voice and circumstances under which things were said, they are simply looking for a good story to tell.

I have and always will caution my readers to take what they read at face value and if they want to really know the deal – research and read and form your own opinion. A well informed trader will always be successful.


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